IASbaba's Daily Current Affairs Analysis, IASbaba's Daily Current Affairs Feb 2017, National, UPSC

IASbaba’s Daily Current Affairs – 3rd February 2017

NATIONAL

TOPIC: General Studies 2

Effect of policies and politics of developed and developing countries on India’s interests, Indian diaspora.

The H-1B visa conundrum

Background

H1B visa is an employment-based, non-immigrant visa category for temporary workers.
For such a visa, an employer must offer a job and apply for employee’s H1B visa petition with the US Immigration Department. This approved petition is a work permit which allows employee to obtain a visa stamp and work in the U.S. for that employer.
Eligibility- it is issued for a specialty occupation, requiring theoretical and practical application of a body of specialized knowledge.
The U.S government issues 85,000 H-1B category of guest worker visas every year through a lottery system
India and H1 B visa– the guest worker visa programmes that allows the movement of skilled workers to the U.S., which is used extensively by Indian IT companies.

The proposed change

A comprehensive immigration reform through legislation has been as long pending issue in the US. But it is not easy to alter a law which accommodates all domestic constituencies in the country.
As per report, the White House is ready with an executive order which targets H1 B visa workers. As per the draft copy,
- The lottery system could be replaced with new selection method which would allow only the “the best and the brightest” as beneficiaries of the programme.
- The salary eligibility for such visas to be raised to $100,000.
- Spouses of H1B visa holders could lose their permit to work, which was granted by the previous Obama administration.
- It will restrict the Optional Practical Training (OPT) work, a job training opportunity available for Science, Technology, Engineering, Math (STEM) Masters from a U.S university.
- Envisages an inspector raj where Department of Homeland Security (DHS) will be required to carry out “site visits” at places where guest workers with L-1 visas are employed, intra-company transferees.
- To reserve 20% of the H1B visas allocated annually for firms that have 50 or fewer employees.
This initiation is further fuelled by introduction of atleast 4 bills on H1 B visa in the Congress to basically give employment to the US citizens and plug loopholes in the foreign talent hiring programme.

Why the change?

The American companies are calling employees on H1 B visa, training them and then send them back to their host countries and ultimately outsourcing the job. This doesn’t create job opportunities for Americans who lose on skills as well as opportunities.
Also, it has been alleged that foreign companies bring in low-skilled talent to USA which again replaces the American worker.
Hence, the changes brought into H1B non-immigrant visa programme thereby are furthering President Trump’s campaign promise of ‘Buy American, Hire American’.

Hurting India

Indian software services industry which is already facing pressures on profitability and revenue, is the biggest target of US immigration reforms.
If the order is implemented, Indian software biggies like TCS, Infosys and Wipro will have to make fundamental changes in their business strategies. With more American workers to hire to paying increased salaries, it may erode their operating margins by as much as 3 percentage points.
If that is not done, then another option is to settle for a much reduced scale of business in their most important market.
In any case, the profit margins are going to sink and new investments and business opportunities may take a hit.

Hurting America

The push to protectionism would cast shadow over bilateral relationships with India. Collaterally it will raise troubles for US tech sector and broader economy as well.
The proposed hike in the minimum salary levels for the specialised jobs held by H-1B visa recipients will hit not only Indian IT firms but also giants of Silicon Valley, including Microsoft, Google and Facebook which will ultimately hurt US economy.
Also, it is required that skill-based criteria are used in addition to wage –level restrictions. If this doesn’t happen, many US firms will struggle to fill mid-level jobs with qualified Americans and with visa restrictions, wouldn’t be able to hire foreign workers.
Reactively, the Indian IT companies which have been rapidly growing investors in USA for years would rather prefer to take back their operations back to India. Ironically, that could lead to job losses for American workers.
Thus, the Trump administration need to think through all the possible outcomes that could result from such hastily made policies on immigration.
The prevailing protectionist sentiment will lead to a sharp rise in on-shoring and near-shoring arrangements

Silver lining amidst the gloom

If the immigration reforms take place, it might act as a catalyst for the transformation of India’s information technology (IT) services companies. This has a precedence
In 1981, the Reagan Administration forced the Japanese automobile industry to sign an agreement limiting exports to the US to 1.68 million automobiles a year.
Such a deal was to protect US’s automobile industry but it did nothing to help General Motors, Ford, and Chrysler to become more competitive. Instead, it boosted Japanese companies’ fortunes in 4 ways
1. The ceiling on American imports, coupled with growing demand, allowed the Japanese manufacturers to raise prices and boost margins.
2. As they didn’t have to compete on price, they started to differentiate themselves
3. They manufactured bigger cars as they could no longer sell as many small cars as they wanted to. This gave rise to premium cars such as Lexus
4. It forced the Japanese companies to localise manufacturing.
Similarly, Indian IT companies now need to shift their business model from labour cost as the fundamental source of competitive advantage.
They are facing challenges from various fronts such as commoditization, technology shifts, automation and growing protectionism. Hence, the shift should come to the business model from ‘renting out IQ to creating IP’.
No doubt, intellectual understanding alone is not seldom sufficient to drive transformation. A variety of factors –mindset, culture, capabilities, incentives, budgeting processes and the pressure to deliver— all together frame the future.

IASbaba’s views- Way forward

Indian tech companies have helped create over 400,000 jobs in the US, paid over $20 billion in taxes in the past five years. They have also made a difference to 120,000 young Americans through various STEM (science, technology, engineering and mathematics) education initiatives. Thus, India’s contribution to US economy has been no less significant. Instead of getting bogged down by foreign policies, Indian IT companies should now diverse their focus to areas like localise and near shore business, leverage new technologies—artificial intelligence, automation, telepresence and augmented reality etc. This model of offshoring will require less on engineers being on client premises.

The Indian IT services should now seize the opportunity to transform and they shall be perceived not as “Indian” or “body shops,” but as global technology giants that don’t need visas to succeed.

Connecting the dots:

Are Indian IT companies dependent on H1B visas for their success? Discuss the role of new projected immigration reforms’ impact on Indian IT companies.
What are H1B visas? Are they a growth measure for Indian IT companies? Analyse.